Biopesticides are en vogue in the world of agtech. Ever since Bayer acquired Agraquest for nearly half a billion dollars in 2012, start-ups have been raising significant money and jockeying for position as attractive partners and/or acquisition targets. The biopesticide market is still small – in the single-digit billions of dollars worldwide (see the Lux Research webinar “Planting Seeds for Future Success“) – but these products continue to take market share from the conventional pesticide market, which is worth more than $50 billion worldwide. While smaller companies like Marrone Bio Innovations and Stockton Agrimor have made headlines by developing promising biologicals, it’s really the world’s leading agrichemical companies that dominate the patent landscape for biopesticides (see figure below). Of the top 10 patent assignes in the biopesticide space, only five major companies and two smaller companies (Marrone and Qingdao Haolite) are represented. Notably absent from this group is Syngenta, a major player in the conventional agrichemical space.
The integration of Global Positioning Systems (GPS) with agricultural machinery catalyzed the digitization of farms in the early 2000s, enabling farmers to visualize yield variation within their fields. Since then, the definition of digital ag has evolved to include features beyond just basic yield mapping, such as variable rate prescriptions, irrigation guidance, seed variety benchmarks, and pest outbreak alerts. Decision support features abound, but the present state of the industry is fragmented. Most developers are start-ups who provide one aspect of decision support, and their solutions work in silos alienated from the rest of farm operations. Continue reading
What They Said
Just last month, in December 2016, the BioAg Alliance announced it had co-developed its first product, a corn inoculant seed treatment, branded Acceleron B-300 SAT. Monsanto and Novozymes have not disclosed many details about the inoculant, other than that it contains a fungal species isolated from soil, and field trials of the inoculant in corn has demonstrated an average yield increase of 4 bu/ac in the U.S. Monsanto will apply the product to all of its 2017 corn hybrids, including its DEKALB and Channel brands. Monsanto will pre-coat seed before shipping it to retailers and farmers, calling the treatment the first “upstream” corn inoculant ever developed. Monsanto already provides downstream seed treatments through its Seed Applied Solutions division. Farmers can choose to coat corn, soy, and cotton seed with insecticide, fungicide, and nematicide (see figure).
Syngenta was the subject of breathless press coverage once again this week, with headlines about Monsanto’s takeover intentions capturing a significant portion of the coverage, and BASF’s newly revealed activities taking a close second. For those clients who are unaware of the ongoing posturing in the space, here’s a quick recap:
Monsanto has previously made multiple offers, over multiple years, to purchase Syngenta. These offers have carried varying valuations for Syngenta, with the most recent and seemingly serious proposal valuing Syngenta at $45 billion. Syngenta CEO Michael Mack has spoken up, calling the offers to date an undervaluation of the company, and that the anti-trust implications would be significant; additionally, Syngenta has posted promising growth figures recently, making it a poor time to consider offers. Meanwhile, Monsanto executives have been working in the background, claiming to have verbal support from various Syngenta shareholders. Very recently, BASF announced its intentions to block Monsanto’s efforts, stating that they had raised bridge funding for a potential takeover. Rather than take an active role, however, BASF intends to remain reactive and claims it will only advance its efforts in the event that Monsanto brings a formal proposal forward.
In light of these battling titans, Lux asks the question: What would the impact(s) on the agribusiness industry be if either titan is successful?
If Monsanto is successful in convincing Syngenta to accept its overtures, it will retain Syngenta’s chemicals businesses and divest the company’s seed businesses. Monsanto believes this will assuage concerns of anti-trust regulators, though it’s possible Monsanto will have to divest essentially all of its seed businesses and become a pure agrichemicals company to truly satisfy those demands. BASF will number among the would-be buyers for a portion of the seeds side. Based on comments in the press, Monsanto is likely to treat the transaction as a means to access Syngenta’s existing facilities and customer base, rather than its R&D pipeline. Current Syngenta R&D efforts may be shuttered in favor of ongoing Monsanto efforts.
Monsanto is likely to move its headquarters to Basel where Syngenta is already headquartered, thereby taking advantage of the more attractive corporate tax situation in Switzerland compared to the U.S., saving billions of dollars that it may well use to sweeten the deal for current Syngenta shareholders. Current dealers of Syngenta seeds and chemicals will lose out, likely to be forced to shift to Monsanto-branded products. Growers currently using Syngenta seeds may switch to other agrichemical providers rather than purchasing Monsanto products, a potential boon for the eventual purchaser of Syngenta’s current seeds business. Monsanto’s precision agriculture offerings will likely become more accessible to European growers (and will be marketed to them more aggressively), leading to an increased cost of production and increased yield for corn, soy, and wheat in Europe. Within five to eight years, European row crop farm incomes will be much more volatile. There will be little noticeable change for U.S. growers beyond the disappearance of the Syngenta brand from available options, and potential marketing pressure to switch to Monsanto-branded products.
BASF has said it will only make a formal offer as a defensive move in the event Monsanto follows through with a formal offer of its own. If BASF succeeds, it will be because it brought a more attractive offer to the table than Monsanto could. Anti-trust concerns would dominate the initial joining between these two as well, likely prompting sell-offs. As BASF has been much less vocal in the press about its intentions, it is harder to predict its strategy. Lux would expect BASF to focus on chemistry over seeds as well, perhaps making Syngenta’s seed business available for purchase. The potential tax implications are not so impressive in this case, and it is unlikely BASF would move its headquarters. The combined company would likely move quickly to dominate the European market, potentially at the expense of market share in the U.S. That could end up being a boon for Monsanto, which would likely intensify its focus on gaining U.S. market share. The long-term result of a BASF success would likely be increased regionality among the major agribusinesses.
In any event, if either attempt is successful, the result will be a even smaller group of leading companies in an already well-consolidated industry. Rather than the “Big Six” of agriculture to date, the new group will be the “Huge One and Big Four” going forward. A smaller number of major players can often stifle innovation in an industry, as it means fewer potential partners and licensees for startups trying to innovate. Either overtaking company should double down on open innovation to ensure that the long-term impacts of its actions don’t include a drought of novel ideas for agriculture.
In separate press releases, both Dow AgroSciences and Valent BioSciences made announcements demonstrating new commitments to biological crop protection. Dow AgroSciences announced a partnership with Radiant Genomics, a metagenomics company. Sumitomo Chemical’s subsidiary Valent BioSciences announced a partnership with Evolva, a company with expertise in developing engineered yeast strains. Both collaborations will aim to develop and discover novel biological actives for crop protection, with Dow AgroSciences focusing on discovery and scale production of natural products and Valent BioSciences working on scale production of actives using engineered yeast. These partnerships are reminiscent of the December 2013 announcement by Monsanto and Novozymes (client registration required) of the BioAg Alliance, also targeting biological crop protection products.
Dow AgroSciences has demonstrated past success with its spinosad-based insecticide product lines like Entrust and Conserve. Spinosad is a natural product insecticide, isolated from a naturally occurring bacterial strain called Saccharopolyspora spinosa. The company has demonstrable expertise in scaling up production once a valuable biological active ingredient is identified – which is what makes the partnership with Radiant Genomics (client registration required) highly valuable. Radiant has expertise in identifying such promising candidates, using metagenomics to identify the genes required to synthesize candidate compounds. This partnership will bring together discovery and scalability, and should yield rapid progress.
Valent BioSciences has also demonstrated success with scale production of biological actives for crop protection. The company owns the largest purpose-built biorational facility in the world, which it just opened in mid-2014. To date, its catalog of agricultural products has been focused on microbials and plant growth regulators, rather than insecticides or fungicides. While Evolva has demonstrated expertise in producing specialty chemicals like resveratrol and vanillin, it is a new entrant to the agriculture industry. Evolva will need to successfully navigate a steep learning curve to apply its expertise to this new sector. While the two companies will work together on manufacturing, Valent BioSciences will likely use parent Sumitomo Chemical Company’s global distribution network to aid in commercialization.
While both partnerships have promise, Dow AgroSciences’ work with Radiant Genomics is definitely poised for quicker success as it brings together teams with existing expertise in this industry. Valent BioSciences and Evolva also appear positioned to work well together, but will need to navigate the transition of Evolva’s expertise from food and fragrance ingredients to crop protection ingredients. Regardless of speed, both bets are likely to pay off in new biological crop protection products. For others considering getting into the space, these announcements make clear that the time is now to find a partner and enter the fray. Clients should look to emulate these representative partnerships – earnestly identify your own expertise, and then look for a partner that fills your gaps and/or extends your reach for the best, most rapid success.
Biological and genetic technologies like DNA sequencing and synthesis are advancing rapidly, outpacing even Moore’s Law of semiconductor performance (as Rob Carlson has pointed out). Genetic technologies are now at a point where long-standing assumptions about a wide range of legal, ethical, and societal issues are being debated or even overturned:
- Ownership of genetic intellectual property versus fair use of genetic knowledge. Gene patents have been allowed for decades. But after a protracted legal battle between diagnostics company Myriad and the American Civil Liberties Union (ACLU) over testing for the breast-cancer related BRCA gene, the U.S. Supreme Court ruled that companies cannot claim ownership of naturally-occurring genes (client registration required). Industry organizations like BIO said the decision could reduce patent protections for biotech crops by making plant genes fair game for competitors to companies like Monsanto, Syngenta, and Dow Agrosciences. Just recently, university researchers launched the Open Source Seed Initiative, partially in reaction to seed IP-holders’ aggressive business practices (client registration required). However, are even free genes truly free? Social progressives also argue that genes can be “owned” by individuals or groups (see Henrietta Lacks, Cartagena Protocol). The iGEM Open Parts Registry strives to make its components (modular DNA sequences) freely available to all, but real and imagined patent thickets discourage almost anyone but amateurs from utilizing them. Despite needed changes to IP law, the mere possibility of David-versus-Goliath litigation is keeping genetic knowledge from being fully used (see the report “BioPunks and BioPatents: The Open-source Battle Comes to Synbio IP” — client registration required).
- Collective (bioethics) versus individual (grass-roots funding) rights. Several U.S. states voted on mandatory labeling of GMO foods as a consumer protection, but sloppy science and sloppier lawmaking led to their defeat (client registration required) at the ballot box – and a victory for ag biotech. At the same time, civil society advocates ETC Group tried to stop the Kickstarter crowdfunding campaign of Glowing Plant, a house plant genetically modified with a bioluminescent non-toxic protein. ETC did convince crowd-funding site Kickstarter (client registration required) to prohibit future campaigns for genetic technologies, but – possibly eyeing GlowingPlant’s massively successful $484,000 campaign – Kickstarter competitor Indiegogo rolled out the welcome mat (ironically, ETC’s “kickstopper” campaign there raised just 10% of its goal). In both cases, popular sentiment sustained pro-genetic technology, even though the developers ranged in scale from global giant to garage startup – the latter putting ETC in the odd position of being the bully. Even if you wanted to stop it, could you? As startups and garage biotech groups like DIYBio and BioCurious disseminate access, know-how, and funding, they are sharing data electronically on how to make their own glowing pets and plants and snacks, circumventing antiquated restrictions and IP schemes.
- Patient rights versus personal privacy. Just how easy is genetics getting? The U.S. Supreme Court ruled in Maryland v. King that police don’t need a warrant to take genetic samples, which are now “as simple and normal as taking a photograph.” However, genetic data that’s easy enough for police to handle is apparently too dangerous for citizens: last year, the U.S. Food and Drug Administration (FDA) prohibited personal genomics startup 23andMe from marketing its $99 DNA analysis kit directly to consumers. The accuracy of the kit’s results is not in question (the test runs on a gold-standard chip from Illumina), but rather the right to communicate potentially disease-related results (such as BRCA) to the consumer. That’s silly because such information is already freely and widely available on the Web, and futile since the cost of even more comprehensive tests is making both tests and data highly accessible: 23andme’s supplier Illumina just “broke the $1,000 genome barrier,” and ICL spinout QuantumDX (client registration required) will soon launch a hand-held DNA analyzer and sequencer that “will enable any layperson to run DNA analysis” in less than 15 minutes, for under $20. While the company’s Indiegogo campaign failed, other successful ones like Scanadu’s indicate that crowdfunding could even become a key part of FDA device approval strategies (client registration required).
Is it time for a Genetic Frontier Foundation?
To someone from the information technology (IT) world, these and other genetic technology (GT) issues will sound very familiar: open source, patent trolls, privacy, security, innovation – and the list goes on. The similarity is not coincidental: electronic and genetic data have both transitioned from a past when they were closely tied to a physical substrate, to a future where they are simply data – easily copied, changed, simulated, and transmitted. In IT, the non-profit Electronic Frontier Foundation (EFF) has played an indispensable role in representing citizens, entrepreneurs, and other smaller and newer players – but larger ones, as well, e.g. on Net Neutrality – in both updating and preserving technology-associated rights from regulatory overreach and unfair, uncompetitive practices.
The EFF addresses issues ranging across ownership of intellectual property, free speech and information transparency, ethics, and innovation – witness IP (Open Source, Fair Use, patent trolls) access (Rebroadcasting, Digital Rights Management, Broadcast Flag), privacy (Do Not Track, NSA spying), and many other topics. As such, the EFF offers a model for how the users and developers of genetic technologies might collaborate to address the issues they jointly face. Its website says:
When our freedoms in the networked world come under attack, the Electronic Frontier Foundation (EFF) is the first line of defense… New ideas challenge the status quo. That’s why people who make cool tools get so much heat from the old guard – and their lawyers.
Do genetic technologies need a similar body? Many GT organizations and laws do exist to address these and similar issues – like Genetic Alliance in personal genetic privacy, BioBricks Foundation in open-source gene IP, BioFAB in bioethics, and BIO in regulatory matters. Sometimes these groups are on the same side, but they can also be unaware of each other or even in opposition (when their economic interests diverge). And they are frankly not as aggressive or effective as the EFF has been. The legal, economic, and ethical aspects of genetic technology are deeply interwoven, and they share many of the same stakeholders, which is why it makes sense now to consider them together. Moreover, these issues are just beginning in genetic tech (whereas the EFF has stayed pretty busy with new IT issues throughout the nearly 25 years since its founding).
Just as the EFF was founded to reinforce or reform law, regulation, and policy around digital technologies, we now need a “Genetic Frontier Foundation” to ensure the same beneficial co-evolution of genetic technologies and the rules that govern their use in treating disease, increasing food supply – and yes, glowing house plants. Despite today’s outmoded regulatory, IP, and ethical environments, genetic technologies – and the number of people who know how to use or make them – have grown so far and so fast, it’s nearly magical. They will only accelerate, not slow or retreat back into the bottle. With coordinated advocacy, developers and users will continue to reap the benefits we all wish for.
 The same protein is used to make GloFish pets, which are approved by the U.S. Food & Drug Administration (which has jurisdiction over biotech animals), and found to be safe by the United States Department of Agriculture and United States Fish and Wildlife Service. They are banned in only one state, California. Notably, FDA considers GFP to be an “animal drug,” and GFP is in the middle of a notoriously complex patent pool (started by GE Healthcare), opening up further legal and regulatory questions around its ownership and use.
Last week, Monsanto and Novozymes announced the formation of a new research and development (R&D) cooperation, aimed at rapid discovery and commercialization of biological products for agriculture. Named the BioAg Alliance, this cooperative effort is designed to draw on the strengths of each company to shorten discovery timelines and, theoretically, decrease the cost of development for new biological products. This announcement seems a logical next step following comments by Monsanto’s Dave Russell at the World Agri-Tech Investment Summit earlier this year, where he highlighted biologicals as the “missing piece” in Monsanto’s goal of offering fully integrated crop care solutions. Under the terms of this agreement, Monsanto will pay Novozymes a lump sum of $300 million. The two companies will then share R&D costs, with each company responsible for the research steps with which they are familiar. For example, Novozymes will be responsible for fermentation, process optimization, and production, while Monsanto will handle field trials, registration-related activities, and product commercialization. While this agreement will not be in full force until clearing U.S. antitrust regulators, no impediment is anticipated at the regulatory level.
This BioAg Alliance will focus on developing new agricultural biological products. “Agricultural biologicals” is an umbrella term describing various biological, bio-sourced, and bio-derived products that can enhance crop cultivation. Relevant product categories include biopesticides (client registration required), microbial and fungal extracts, whole microbes, beneficial insects, plant extracts, and various fermentation products. These products can impart a wide range of traits and protections to crop plants, including insect resistance, disease resistance (client registration required), yield increase, enhanced yield stability, and heightened abiotic stress resistance. Specifically, Novozymes reports that this alliance will focus on “biocontrol, biofertility, and bioyield enhancers.”
Biologicals are a fast-growing sector. Monsanto estimates the area to be worth $2.3 billion dollars annually, and cites rapid recent growth as evidence of biological products’ growing importance for agriculture. Earlier this year we reported on a collection of high-profile acquisitions of biological product producers by major agribusinesses, totaling $2.5 billion (client registration required). Monsanto is not the only major agribusiness company seeking to capitalize on the growing biological market, but this is definitely a new approach compared to the M&A style of other efforts in this sector.
The Crop Protection Association estimates that bringing a new molecule to market costs $250 million and can take upwards of 9 years. Whether through outright acquisitions or via alliances like the BioAg Alliance, it is imperative that agribusinesses work to bring those costs down. This alliance has promise to chip away at those costs. Others on both sides of the field expertise-wise – agribusinesses and biological developers alike – should consider coming together in a similar manner to avoid losing out on a piece of this rapidly-growing, multi-billion dollar pie.
What They Said
Trimble, a location-based services company with its own precision agriculture offering dubbed “Connected Farm,” recently announced multiple acquisitions of companies in the space. The company announced that it acquired the assets of two sister companies, RainWave and Hydro-Engineering Solutions, focused on rainfall and watershed monitoring services respectively. In a separate release on the same day, Trimble also announced it had entered into an agreement to acquire IQ
Irrigation, a New Zealand-based GPS-enabled precision irrigation firm. Joe Denniston, Trimble’s VP of Agriculture, said, “With the solution, farmers can more efficiently utilize water by delivering the right amount of water to where it’s needed. By also staying apprised of other critical information via the Connected Farm dashboard – such as rainfall data and weather forecasts – farmers can make more informed irrigation decisions for their operations.”
What We Think
Through these acquisitions and its continued development of the Connected Farm platform, Trimble is making inroads toward establishing itself as a key precision irrigation player in an extremely crowded space. Many companies with offerings in precision agriculture, like John Deere, J. R. Simplot, and Monsanto, have significant market share in the space, but increasing competition and increased farmer adoption are set to grow the precision agriculture market substantially in developed and developing countries, making space for new players to successfully enter the fray. Companies not already focused on possible opportunities in precision agriculture should pay close attention to this and other similar acquisitions in the space. Those companies with any existing precision agriculture capabilities should take notice and look for partnership and acquisition opportunities including advanced irrigation, weather forecasting, input control, and crop monitoring technologies.
Venture capitalists (VCs) invested $3.1 billion in bio-based chemicals and materials developers since 2004. As many of those start-ups reach megaton scales and launch IPOs, Lux Research analysts sought to find which technologies venture investors favored. This week’s graphic comes from their just published report (client registration required), in which analysts tracked 177 venture transactions involving 79 companies operating in five technology categories – biocomposites, bioprocessing, thermochemical processes, crop modification, and algae. In short, they found:
Bioprocessing developers brewed up $1.89 billion in 96 deals. Bioprocessing developers – especially synthetic biology companies – landed more than half the total venture capital invested since 2004. Encompassing technologies like fermentation, phage display, natural breeding and synthetic biology, all bioprocessing platforms employ some sort of organism as a “factory” for creating products as diverse as sweeteners and catalyst supports. Intrinsically flexible, these platforms enable the likes of Amyris, Codexis, LS9, and Solazyme to produce multiple products from multiple feedstocks, thus ensuring a relatively low-cost route to high-value compounds and providing a hedge against feedstock and product price volatility.
Thermochemical technologies raked in $577.0 million in 31 deals. Thermochemical processing encompasses technologies like gasification (Enerkem), catalysis (Avantium, Inventure), and acid hydrolysis (HCL Cleantech, BlueFire) that sometimes convert biomass to an intermediate like sugars or syngas, and sometimes go all the way to an end product. (e.g. Virent’s paraxylene is used in Pepsi’s famed 100% bio-based PET bottle
Crop modification companies harvested $371.7 million in 28 deals. IPOs are less common fates for crop modification companies which, as you may have guessed, modify crops to be more amenable and economical for use in bio-based materials and chemicals. Instead, companies in this category, like Athenix and FuturaGene, usually end up being acquired by the likes of Syngenta, Monsanto, DowAgro, or Bayer CropScience.
Algae developers saw $190.5 million in 13 deals. Notably, that figure only encompasses start-ups developing algae strains, cultivation systems, and processing equipment for creating industrial chemicals. Representative developers include Bio Architecture Lab, a macroalgae developer, and Israel’s Rosetta Green, which had raised $1.5 million in venture funds, but more recently brought in almost $6 million in an IPO on the Tel Aviv TASE. Excluded from this category are companies primarily developing fuels (which we cover in our Alternative Fuels Intelligence service), and companies like Solazyme and Green Pacific Biologicals that use algae for fermentation (and, thus, are categorized in bioprocessing, above).
Biocomposites developers brought in $108.9 million in a mere nine transactions. This category includes bioplastic blends, some starch plastics, and bio-based foams, from the likes of Cereplast, EcoSynthetix, Ecovative Design, and Entropy Resins. Because of the relatively simple nature of these technologies, VCs often don’t see them as investment opportunities – forcing companies like SoyWorks and Biop Biopolymer to find other sources of funding.
Source: Lux Research report “Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals.”